Each month in this column, experts will highlight mutual funds
of interest to entrepreneurial investors.

Before making a big decision, most people want to evaluate all
their options. Imagine, for example, going to purchase a new car
but being shown only one-third of the autos that meet your
specifications.

In the investment realm, it's all too easy to
unintentionally limit your choices by not looking beyond U.S.
borders when putting together a portfolio. True, a lot of
world-class companies hail from the United States--but there are
just as many top-notch offerings overseas.

You could argue that investment professionals with expertise in
a particular region have an edge over those who attempt to cover a
broader territory. Yet Smallcap World, a $6.6 billion mutual fund
managed by a team of analysts and portfolio managers from Capital
Research and Management in Los Angeles, has proved you don't
have to specialize to perform well. Unlike funds that target
foreign stocks exclusively--or, conversely, solely domestic
equities--Smallcap World has the flexibility to invest in small-cap
stocks wherever it sees fit. Since its inception in 1990, the fund
has consistently stashed the largest chunk of its assets (roughly
50 percent) in U.S. stocks. But the rest are spread far and wide,
in countries such as Australia, the United Kingdom and Hong
Kong.

Over the past five years, the fund has been right on target,
outperforming other world-stock offerings with similar investment
objectives. Even more impressive, however, Smallcap World has been
better at unearthing profitable small companies than many funds
that specialize in the U.S. market. In the past five years, the
fund has returned more than 14 percent annually--competitive with
the returns of most U.S.-focused small-company funds. And while the
fund's 1.13 percent expense ratio may be higher than some index
funds, it is below average for a global fund.

The returns look even better when combined with Smallcap
World's refreshingly low-risk profile. The fund looks pretty
tame relative to most world-stock funds because it doesn't
stray too far into the rocky arena of emerging-markets investing.
Another reason for its stability--particularly relative to
high-powered U.S. small-cap funds--has been its sizable cash
position. As assets have grown steadily over the past several
years, the fund has typically held up to 20 percent of its assets
in cash.

It can be tough to find enough good stocks to buy when
you've got more than $6 billion in your pocket. Yet
Smallcap's mammoth size hasn't been a drawback. It
continues to dig up stocks found in few other mutual funds,
including such unlikely names as Yip's Hang Cheung Holdings (a
company that supplies paints and solvents to manufacturers in
Southern China) and Hummingbird Communications (a Canadian software
development company).

Overall, the portfolio is tilted toward the service sector (31
percent of assets), where many small companies tend to be
concentrated. By focusing on stocks that either dominate a small,
local market or specialize in a niche product, Smallcap World's
managers hope to tap into the entrepreneurial spirit. That,
combined with Smallcap's ability to ferret out unusual,
profitable stocks around the globe, makes this fund deserving of a
closer look.

Tricia Rothschild is International Editor of the mutual fund
research publication Morningstar Mutual Funds. The above opinions
are those of the author and not of Entrepreneur. These investments
vehicles may not be right for you. Carefully investigate beofre
investing.